Temporary 0.2 Percent FUTA Surtax Expires

The 0.2-percent federal unemployment tax act (FUTA) surtax expired after June 30, 2011 (TAXDAY, 2011/06/06, M.2). At this time, it is unclear if Congress will extend the surtax, as it has routinely done in past years.

Prior to July 1, 2011, FUTA was made up of the permanent 6.0-percent rate and the 0.2-percent surtax. Additionally, employers may be eligible for a credit against FUTA tax for amounts paid into state unemployment funds. The FUTA taxable wage base is the first $7,000 paid in wages to each qualified employee during a calendar year.

In 1976, Congress enacted the FUTA surtax to help repay federal revenues paid in unemployment benefits. Congress extended the surtax in 1987 and in subsequent years. Most recently, Congress renewed the surtax in the Worker, Homeownership and Business Assistance Act of 2009 (P.L. 111-92), which extended the surtax through 2010 and the first six months of 2011.

“The death of any tax on jobs, no matter how big or small, is a historic moment and one to be celebrated,” House Ways and Means Chairman David Camp, R-Mich., said in a written statement. According to Camp, expiration of the FUTA surtax will reduce federal unemployment taxes by $1.4 billion per year.

In his fiscal year (FY) 2012 federal budget proposals, President Obama asked Congress to make the FUTA surtax permanent. The president also proposed to increase the FUTA taxable wage base from $7,000 to $15,000. Congress has not addressed either proposal nor has it taken up legislation to extend the surtax.

Source: CCH Tax Research Network

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